Paris-based global body slashes its oil demand estimate

Bloomberg

The Paris-based adviser to 28 nations cut its global oil demand estimate "slightly" to 83.2 million barrels a day this year, down 3 percent from 2008, it said yesterday in its monthly report. That is 230,000 barrels a day lower than it forecast last month. The revision comes a day after OPEC reduced its 2009 forecast, predicting oil demand of 84.03 million barrels a day. 

"Demand continues to look very, very weak," David Fyfe, head of the IEA’s oil industry and markets division, said in a phone interview from Paris. "Although there has been a lot of talk about the green shoots of economic recovery, we think it is still a little bit early to be flagging any start of a full blown recovery."

Oil prices have climbed 34 percent this year, trading above $60 in New York this week for the first time in six months on increasing optimism about an economic recovery and record production cuts by the Organization of Petroleum Exporting Countries. Still, U.S. crude stockpiles remain near the highest since 1990 as the recession saps fuel demand. OPEC crude production is beginning to rise as higher prices encourage members to pump more than their quotas. Demand is weakest in the world’s most developed nations, where consumption will drop by 5.1 percent this year, the IEA said.

The IEA cited "very weak" demand data in April for the U.S., and to a lesser extent, Europe.Crude inventories in developed nations are at their highest since 1993. Stockpiles were equivalent to 62 days of consumption as of the first quarter of the year, according to the IEA.

"The forward demand-cover level is very high," Fyfe said. "The market structure is still supportive of a degree of stock-building. It is do with oil for which there is scant demand at the moment."

The energy adviser said it expects consumption in developing economies to contract for the first time since 1994 as China and Russia "continue to exhibit sustained weakness." Demand in these economies will average 38.1 million barrels a day this year, a decline of 0.4 percent, or 140,000 barrels a day compared with 2008. The IEA demand estimate is based on a forecast that global GDP will shrink 1.4 percent in 2009 and the world economy won’t start to markedly recover until 2010 at the earliest, it said.